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How might the temporary closure of dangerous mines and the investment of funds into new...

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lilylee | Student, College Freshman | Salutatorian

Posted July 16, 2013 at 1:12 PM via web

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How might the temporary closure of dangerous mines and the investment of funds into new safety systems be an economic stimulus for a mining company?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 16, 2013 at 1:32 PM (Answer #1)

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In many ways, it is easier to see how these actions will be a stimulus to other companies, not to the company making the changes.  This is because all of these actions will actually reduce the mining firm’s cash flow.  The firm will stop getting revenue from the dangerous mine.  It will have to pay for installation of the new safety systems.  This will help the companies that sell and install the systems but not the mining company itself.

However, there is a way in which this can act as a stimulus to the mining company.  This is because these changes will improve its long-term outlook and its long-term profits.  As the company takes these steps, it will look like a safer investment opportunity.  Investors will feel safer putting money into the company if they do not have to worry so much about it having to close mines or about it having mining disasters in the future.  If this happens, more money from investors is likely to flow to the company. In addition, with safety measures in place, mining and related work can go on more effectively, efficiently and safely thus improving the company's profits and, over time, recouping the expenditure losses. 

When more people invest in the company and, in the long-term, when profits increase, we can say that the company will experience an economic stimulus.

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